Protect Small Businesses and Entrepreneurship (Joint Employer)

Millions of businesses across America engage in mutually beneficial affiliation arrangements with other businesses. These arrangements include janitorial services, staffing firms, construction contractors and subcontractors, technology support services, and many other vendor and contracting services. They also include the nearly 775,000 independently owned franchise businesses, which employ 8.2 million workers across the United States. The franchise structure offers a proven business model for individuals who want to own and operate their own small business.

An Obama-era regulation changed the definition of a joint employer to make corporate franchisors jointly liable for employees of individual franchisee owners, even without the franchisor exercising any direct control over those employees.

The Biden Administration is advancing an even more expansive definition of a joint employer that would upend the franchise business model, taking away ownership and income opportunities from small-business entrepreneurs, costing jobs, and raising prices.

Overtime Pay Threshold. Overtime pay is one of the most challenging aspects of the Fair Labor Standards Act rules. “Nonexempt workers” (e.g., workers whose job duties fall within the law’s power or whose total pay is low enough) must be paid overtime (150 percent of the “regular rate”) for every hour over 40 in a workweek.

Overtime requirements may discourage employers from offering certain fringe benefits such as reimbursement for education, childcare, or even free meals because the benefits’ value may be included in the “regular rate” that must be paid at 150 percent for all overtime hours. And because some of these fringe benefits may be more valuable (and often come with tax preferences that benefit the worker), the goal should be to set a threshold to ensure lower-income workers have the protections of overtime pay without discouraging employers from offering these benefits.

DOL should maintain an overtime threshold that does not punish businesses in lower-cost regions (e.g., the southeast United States). The Trump-era threshold is high enough to capture most line workers in lower-cost regions. One possibility to consider (likely requiring congressional action) would be to automatically update the thresholds every five years using the Personal Consumption Expenditures (PCE) as an inflation adjustment. This could reduce the likelihood of a future Administration attempting to make significant changes but would also impose more adjustments on businesses as those automatic increases take hold.

Congress should clarify that the “regular rate” for overtime pay is based on the salary paid rather than all benefits provided. This would enable employers to offer additional benefits to employees without fear that those benefits would dramatically increase overtime pay.

Congress should provide flexibility to employers and employees to calculate the overtime period over a longer number of weeks.

Specifically, employers and employees should be able to set a two- or four-week period over which to calculate overtime. This would give workers greater flexibility to work more hours in one week and fewer hours in the next and would not require the employer to pay them more for that same total number of hours of work during the entire period.

Compliance-Assistance Programming. Labor agencies are often tempted to encourage “over compliance” by companies subject to regulation by pursuing “regulation through enforcement” strategies. Rather than giving regulated entities clear boundaries for what they can and cannot do under the law, the agencies rely on the vagueness of the law to bring enforcement activity against businesses that fail to meet an inspector or agency head’s personal standard. This is not fair to regulated parties and results in disfavored companies bearing the brunt of the agencies’ enforcement efforts even though their behavior may be within the main- stream of employer behavior.

Labor agencies should provide compliance assistance to help businesses and workers better understand the agencies’ position on their own rules and should do so in a way that makes it easier to follow those rules. This frees people to focus on their work rather than slogging through an ever-growing body of laws, rules, and guidance documents generated by the agencies.

DOL should reinstitute the PRO Good Guidance rule via notice and comment.

Congress should amend the Administrative Procedure Act11 to explicitly limit the use of guidance documents.

Clear and Restrictive Rules on Guidance Documents. Federal agencies not only issue regulations to fill in gaps left by legislation, but also supplement those reg- ulations with “guidance” documents that occupy a unique and often confusing area between law and “helpful advice.” Unfortunately, wielded by overzealous enforcement agents, such guidance, some of it even hidden from public view, morphs into binding law used against unsuspecting employers. Guidance can be a tricky thing and can be used for good or bad. It should be used to make compli- cated regulations easier to understand, so that businesses can do their actual jobs and focus on providing jobs to American workers and value to consumers (really, compliance assistance). But guidance is often used to create new rules overnight without following legal requirements—like giving the public an opportunity to provide valuable input. This wrongful use of guidance hurts workers and those who employ them. In October 2019, President Trump signed an executive order ending this abusive practice and created a new, fairer system for American busi- nesses and their employees. In response, DOL published its PRO Good Guidance rule,10 which expressly limits its use of guidance in enforcement actions and gives the public the opportunity to submit comments to influence the department’s deci- sions on creating, revising, and even rescinding guidance. Under this rule, agencies cannot treat guidance as legally binding and must make all guidance documents readily accessible on their searchable online databases. This rule was immediately rescinded by the Biden Administration.

Exemptions from Regulations for Small Business. Burdensome regulations have anti-competitive effects. In general, larger, higher-margin businesses are better able to absorb the costs of regulatory compliance than are small businesses, and under the Biden Administration, big-business lobbies have affirmatively embraced certain regulations (such as the COVID vaccine mandate for private employers) to reduce competition from smaller businesses. Research suggests that labor regula- tions may pose the highest aggregate regulatory cost for small businesses.

The labor agencies should exercise their available discretion and duties under the Regulatory Flexibility Act12 to exempt small entities from regulations where possible.

Congress should enact legislation increasing the revenue thresholds at which the National Labor Relations Board asserts jurisdiction over employers to match changes in inflation that have occurred since 1935 and better reflect the definition of “small business” used by the federal government.

Congress (and DOL, in its enforcement discretion) should exempt small business, first-time, non-willful violators from fines issued by the Occupational Health and Safety Administration.

Education And Vocational Training

Apprenticeships. The next Administration should return to prior policy and implement an industry-recognized apprenticeship program separate from the Registered Apprenticeship Program (RAP) and explore how best to modernize, streamline, and eliminate duplication in the RAP. For roughly 80 years, the RAP— which requires conforming to government standards and includes federal funding, tax credits, and other federal resources—has dominated apprenticeship programs in the U.S. Organizations across the political spectrum have noted that the overly burdensome requirements of RAPs have contributed to limiting them to legacy trades, failing to meet growing industry demands such as in health care and tech- nology. A 2017 study estimated that the number of occupations commonly filled through apprenticeships could nearly triple (from 27 to 74), that the number of job openings filled through apprenticeships could expand eightfold (to 3.2 million), and that the occupations ripe for apprenticeship expansion could offer 20 percent higher wages than traditional apprenticeship occupations.

The Trump Administration expanded apprenticeship options through the cre- ation of the Industry-Recognized Apprenticeship Program (IRAP), and more than 130 IRAPs were created. The Biden Administration rescinded the IRAP regulations.

Congress should expand apprenticeship programs outside of the RAP model, re-creating the IRAP system by statute and allowing approved entities such as trade associations and educational institutions to recognize and oversee apprenticeship programs. In addition, religious organizations should be encouraged to participate in apprenticeship programs. America has a long history of religious organizations working to advance the dignity of workers and provide them with greater opportunity, from the many prominent Christian and Jewish voices in the early labor movement to the “labor priests” who would appear on picket lines to support their flocks. Today, the role of religion in helping workers has diminished, but a country committed to strengthening civil society must ask more from religious organizations and make sure that their important role is not impeded by regulatory roadblocks or the bureaucratic status quo.

Hazard-Order Regulations. Some young adults show an interest in inherently dangerous jobs. Current rules forbid many young people, even if their family is running the business, from working in such jobs. This results in worker shortages in dangerous fields and often discourages otherwise interested young workers from trying the more dangerous job. With parental consent and proper training, certain young adults should be allowed to learn and work in more dangerous occupations. This would give a green light to training programs and build skills in teenagers who may want to work in these fields. l DOL should amend its hazard-order regulations to permit teenage workers access to work in regulated jobs with proper training and parental consent. Workforce Training Grant Program. The federal government spends more than $100 billion per year subsidizing higher education but close to zero supporting people on non-college pathways. l Congress should create an employer grant worth up to $10,000 per year or pro-rated portion thereof for each worker engaged in

Encourage and enable religious organizations to participate in apprenticeship programs, etc. Both DOL and NLRB should facilitate religious organizations helping to strengthen working families via apprenticeship programs, worker organizations, vocational training, benefits networks, etc. on-the-job training, defined as some share of paid time spent in a formal training program.

To qualify, a program—whether run by the employer, an industry consortium, a community college, or a union—would need to define program length, curriculum, career path, and credential and to report regularly on outcomes for participants. Programs that fail to deliver promised results would be disqualified from continued funding. Funding for employer grants should come from existing higher education subsidies that are currently disadvantaging alternative education options.

Federal “BA Box.” The American labor market continues to experience a glut of college degrees. The country produces more college graduates than suitable jobs for them to fill. Meanwhile, employers exacerbate the problem, fueling demand for college by needlessly requiring degrees for many jobs. In 2020, the Trump Administration took an important step toward pro-worker, skills-based hiring practices. Executive Order 13932, Modernizing and Reforming the Assessment and Hiring of Federal Job Candidates,13 directed the Office of Personnel Management to reduce degree-based practices in the federal civil service. Maryland’s Governor Larry Hogan issued an executive order in 2022 to adopt this rule for Maryland state employees, and Utah’s Governor Spencer Cox in December of 2022 announced that Utah would do the same. Today, federal civil service job descriptions must “be based on the specific skills and competencies required to perform those jobs,” and may prescribe a “minimum educational requirement” only if it is otherwise legally required. The same policies do not extend beyond the civil service. Federal agencies continue to require college degrees for contract employees, and federal contractors are rarely able to place workers without four-year degrees on federal projects, regardless of their qualifications. Private employers consistently impose a BA requirement on jobs even when existing workers in the role do not have one.

Adopt the civil service’s skills-based hiring standards for federal contractors. The President should direct the Administrator for Federal Procurement Policy to adopt the civil service’s skills-based hiring standards for federal contractors and issue waivers from degree-based staffing requirements in existing contracts. Prohibit the use of a BA requirement in job descriptions. Congress should prohibit the inclusion of a BA requirement in job descriptions for all private sector employers, or the use of a BA requirement to screen applicants using algorithms, except where a BA from a particular type of institution or in a particular field is a bona fide requirement of the position. — 596 —Department of Labor and Related Agencies Alternative View. While the federal government has a duty to promote economy and efficiency in federal hiring and contracting, and thus should base decisions on skills as opposed to degrees, it is not the federal government’s role to determine whether private employers may or may not include degree requirements in job descriptions and in their hiring decisions. The inappropriate reverence given to degree requirements is a byproduct of the federal government’s heavy subsidi- zation of BA degrees. Phasing down federal subsidies would be a better way to eliminate barriers to jobs for individuals without BA degrees. Federal Workforce Development Programs. Existing federally funded work- force development and training programs should be reassessed to ensure they are outcome-based and truly deliver value to taxpayers and job seekers. As of 2019, the federal government spent approximately $17 billion annually on 43 federal employment and training programs administered across nine federal agencies, many of which overlap with at least one other program. Many of these programs track only inputs or individuals served, not outcomes or outputs, and do not swiftly identify bad-actor grantees. The federal government should identify underperforming programs and eliminate or redirect that funding to programs with strong outcome-based metrics.

Review employment and training programs to ensure outcome- based metrics. DOL and other federal agencies with jurisdiction over employment and training programs should review their programs and utilize all available tools and authority to ensure these programs contain strong outcome-based metrics.

To the extent that agencies have this authority, they should reevaluate funding for programs that do not meet those evidence-based and outcomes-based requirements. Finally, strong internal policies should be implemented to ensure bad-actor grantees are identified and sanctioned expeditiously.

Federal Unemployment Insurance Program. In the post-pandemic land- scape, the federal government should restore the Unemployment Insurance (UI) program’s purpose with a particular focus on reestablishing program integrity and accountability. The Coronavirus Aid, Relief, and Economic Security (CARES) Act15

Evaluate and streamline workforce development programs, ensuringevidence-based outcomes.

In its reauthorization of the Workforce Innovation and Opportunity Act (WIOA),14 Congress should evaluate and streamline the existing workforce development programs to ensure there is no overlap or fragmentation between programs. Congress should also ensure strong evidence-based outcomes for each program and tie federal funding for those programs to the outcomes achieved.

unemployment programs were defrauded of hundreds of billions of dollars, including by state-sponsored hacking groups. Not all state agencies are yet through their backlogs of appeals and fraud cases; the recovery of lost funds has been minimal;

and fraud has now spilled into the traditional UI programs. The CARES Act era drastically altered the entire UI ecosystem: The federal–state partnership shifted toward federal programs and funding, and the social insurance purpose of the program was disconnected as benefits were extended, expanded to more typically uncovered populations, and made exponentially larger. l Congress should also develop a framework (through commission of a congressional report to serve as a blueprint) of technical standards on broader tech topics like usability, state agency cybersecurity postures, data taxonomy standardization, and/or identity verification standards.

Congress should enact bipartisan commonsense UI program reforms, including statutory authority for the Labor Office of Inspector General (OIG) to access all state UI records for the purposes of investigation and requiring state agencies to crossmatch applicants with the National Directory of New Hires.

Congress should provide DOL with more reasonable enforcement tools for the UI system. Currently, DOL can either send a strongly worded letter or revoke the entire Federal Unemployment Tax Act (FUTA)16 tax credit, which would place an immediate 6 percent to 7 percent tax on all covered employers.

DOL should review all actual or planned procurements against the $2 billion (under the American Rescue Plan Act)17 for UI fraud detection, accessibility, and equity investments. These funds do not have appropriations timelines and have very minimal statutory descriptions of the intended purpose.

DOL should also review and propose changes to improve state monitoring programs including developing evidence-based frameworks for evaluating the technical readiness and security postures of the state agencies; strengthen its relationship with the OIG and Government Accountability Office (GAO), and support continued development of fraud prosecution with DOJ, the Department of Homeland Security (DHS), and the financial services community; ensure administrative and IT funding is outcome-based; and gather and publish best practices from state officials, industry partners, and other vendors who deliver UI services.